Note: the current delivery-month for Comex gold is June – I absent-mindely reference July as the current gold delivery month in the podcast below.
The trading patterns in gold/silver are starting to reflect the real possibility that the Central Banks are losing their ability to use paper gold/silver derivatives a price manipulation device. Nowhere is this more evident than on the Comex, where the ratio of paper gold/silver futures vs. the amount reported physical gold/silver available for delivery into those paper claims is at historically high levels.
Elijah Johnson of FinanceAndLiberty.com invited me on to his podcast show to discuss the precious metals market, along several other topics. Elijah posted the portion of the show in which we specifically discuss Comex gold trading because it coincides with the strong move higher made by the metals this week.
If the CFTC passed a regulation prohibited the issuance of gold/silver Comex contracts in excess of 120% of the amount of underlying physical gold/silver it would probalby cause a doubling of the price of gold and a quadrupling in the price of silver…
The disappearing stock of physical gold on the Comex and the LBMA has been documented and discussed by several analysts recently, including this website. In correlation with the disappearing physical gold is the preposterous amount of paper gold claims issued against the dwindling supply of gold both in NY and London.
But what does it mean and where is all this gold going?
Long time precious metals market professional and analyst, David Jensen, has written a must-read analysis which explains why the explosion in the amount of paper gold and the disappearance of physical gold is transmitting the message that the NY and London bullion markets are collapsing:
Many will chuckle at the proposition of Western gold market failure and note that the price of gold has gone nowhere. If the markets are in collapse due to lack of available of gold, then where is the price action exploding to the upside? Well, digital gold and silver are still available in copious (infinite) amounts and continue to trade on both the LBMA and COMEX exchanges – you can have as much digital or virtual metal as you want on these digital exchanges. There is no shortage of virtual metal and thus the virtual price that most investors follow won’t move up. The bullion banks have always sold-down this virtual gold price when it has risen.
The telling of the story is instead in physical metal availability and so we look first to the LBMA – the primary global ‘physical’ exchange. The LBMA indicates in it owns market guide that its primary gold trading contracts, unallocated spot market contracts which are claims for spot physical gold (ownership right-here, right-now), give the holder just an unsecured claim for physical gold. This has allowed the creation and trading of non-existent gold to the point that the London spot physical gold market trades 200% of the global annual gold mine production of gold – each day.
You can read the rest of this article here: LBMA/Comex Gold Markets In Collapse
We must not forget that when Germany, in 2013, asked for the return of 674 tonnes of their gold primarily from the Federal Reserve and some from France, they only received 5 tonnes. They were then told that they could get the rest back by 2020. They then announced that they actually received around 150 tonnes back in 2014.
But Germany has since stopped repatriating their gold, with Merkel declaring that Germany is happy holding its gold in the United States. Egon Von Greyerz, King World News
There has to be a big problem in the financial system coming that the Fed knows about but we can’t see it yet. Why? The behavior of the Fed and its ECB/BOE cohorts with respect to the paper gold/silver market conveys a sense of terror on their part.
We learned yesterday from an “official” source, Reuters believe it or not (Reuters has furiously been spreading anti-gold propaganda ), that India is on track to import 900-1000 tonnes of gold this year. This does not take into account smuggled gold which is estimated to be another 25%. India alone, it seems, will inhale 50% of the amount of gold produced in a year.
Then there’s China…China it’s hard to say for sure. If you go by Hong Kong exports into China, it only captures a portion of China’s gold demand. If you go by Shanghai Gold Exchange Withdrawals, China is on track to scoop up over 2000 tonnes of gold this year.
China + India combined are going to import at least 30% more than the total amount of gold produced in a year. Both India and China are entering their seasonally strongest period of gold buying, which will last through the end of the year.
Then there’s silver. By all apparent market indications, there is a serious shortage of silver that has developed, at least at the retail level. Although charlatans from down under who avoided taking economics in undergrad seem to think the 1000 oz Comex bar market is the bellweather, I would like to see a bona fide independent audit of the inventory reportedly being held in Comex vaults. Note: those reports are prepared by the banks – do you trust them?
Premiums on silver products in the U.S. have widened to levels not seen since 2008, when silver eagle premiums approached 100%. Currently, my “bellweather” indicator is Apmex. The premiums on 500 oz monster boxes have widened today to $3.79 over spot. This is the lowest premium product and it’s 27% over spot. If you want to buy just one mint roll of 20, you will have to pay $5.75 over spot, or a 41% premium.
But it’s worse, certain products are not available. We know 90% bags of coins are not available, although they can be had in onesies and twosies for about $7 over spot. But a friend of mine ordered a 100 unit gold gram product from Apmex and was notified this morning that there is “a delay in processing” his order. In the past he said shipment was immediate. This particular product is minted by Valcombi and is a “tear away” sheet of 100, 1 gram units. It’s perfect for preppers who seek fungability. And now there’s a shortage of them…
Base on all the evidence from the physical market – and there’s a lot more evidence of shortages in silver – how do we explain the behavior of the price of gold and in the paper market? Here’s two graphs of the trading in paper gold and silver – click to enlarge:
This type of price action that can only occur by the exertion of an exogenous outside force. In this case it’s the western Central Banks and, specifically, the NY Fed in conjunction with the Treasury’s Working Group on Financial Markets’ Exchange Stabilization Fund. The decline in the price of gold and silver nearly every night for the past four years seems to occur primarily only in the NY/London paper markets.
Certainly everyone by now knows that the Plunge Protection Team is working overtime to keep the U.S. stock market from collapsing. And it is also exerting at least as much effort, and probably more, in keeping the price of gold and silver from exploding.
For now, the banks are finding enough physical gold and silver to keep the Indians and Chinese happy. My best guess is that the GLD, SLV, and the Comex and LBMA custodial vaults are being looted for this purpose. The U.S. retail market is another matter – it’s mind over matter: the Fed doesn’t mind and they don’t matter – for now.
But this will become problematic once those sources are tapped. If you think you have bars being kept in the non-bank vaults on Comex (Brinks, CNT, Delaware Depository and Manfra, Tordella) I would suggest paying a personal visit and verify serial numbers. And then leave with your bars in hand.
If you are looking to buy silver from a big U.S. internet-based dealer in order to minimize the premium you pay, I would suggest instead taking your fiat cash and buying from a local dealer. At least you can guarantee that you will have the product in hand when you tender payment. Otherwise you risk seeing this in your email tomorrow:
Thank for your recent order xxxxxxxx. While processing your order, we encountered a short delay. APMEX strives to ship every order as quickly as possible, but in rare cases order processing may take longer than expected. (Apmex)
The path to growth is gradual but the road to ruin is rapid. – Lucius Seneca, Roman philosopher
We hosted Steve St. Angelo at the Shadow of Truth for a fascinating, if not startling, look at the big developments that look to have the west – and possibly the entire world – headed for an unexpected collapse.
When the system finally starts to unravel, the speed at which it will unravel and how it takes down the fiscal economy will be breathtaking. – Steve St. Angelo, Shadow of Truth
There’s really no good solution. This is the dilemma faced by every western country. The west, including Japan and the United States, has accumulated a catastrophic level of debt in order to sustain a standard of living that is not even remotely supported by economic output. The Greece situation is the poster-child for this dynamic. However, make no mistake about it, the United States is Greece on steroids.
The only difference between Greece and the United States with regard to its lethal level of debt is that 1) the U.S. has the unfettered ability to print money and create more debt in quantities needed to service its existing debt and pay ongoing expenses and 2) the U.S. has a world-ending arsenal of nukes – Shadow of Truth
What we are seeing occur right now going on in the market for physical gold and silver is Gresham’s Law in motion. Bad money chases good money out of the system. This means that anyone who is holding “bad” money – and understands it to be bad money – will take the bad money and exchange it for good money – physical gold and silver – and remove the good money from the system. This is exactly what is occurring with massive transfer of gold and silver from the west to the east:
In the last 15-20 years, money has been funnelled out of physical things and into paper digits and assets…money stored in a safe in the form of physical gold and silver – that’s stored economic energy…Unfortunately, 99% of U.S. citizens and folks around the world took the all the excess surplus paper money [money that has been printed] and put it in “digits” and they think they’re going to get that back. And that’s the reason that gold and silver are so undervalued…and the market hasn’t realized that…Steve St. Angelo, Shadow of Truth
The mining stocks currently are more undervalued now in relation to the current price of gold and silver than they were at the beginning of the precious metals bull market in late 2000. Many of the junior mining stocks can be bought at a stock price that equates to a few dollars per ounce of the amount of proved gold and silver they have in the ground. Every surviving company, large and small, has cut its costs to the bare bones.
When the price of gold and silver resumes its bull market trend – and we believe it has this year – the price moves will be amplified by the declining supply of mined gold and silver globally. The increasing price will fall right to the bottom line of mining companies. Junior miners which have “fattened” up their proved gold/silver resource base over the last four years will see their acquisition value spike significantly higher.
By the end of this year, or let’s say by September/October, I think it’s a perfect scenario for things to get out of hand. If people don’t buy silver right now, I really don’t think they’re going to be able to find it in the future. – Steve St. Angelo
Reader tesitmonial: You’ve written a great report about the “Emerging Silver Producer.” The key is higher silver price but i am concerned about the price of silver though.
I hold my accounts with Sprott and as you know they are super bullish on silver. You have written a couple articles about silver with a positive outlook yourself. I still see the forces who is in control of the prices as too powerful, look what happened yesterday. The ability to drive prices down within one trading (below 17) and extremely negative corresponding move in the mining shares. Its hard to see how silver can be fairly traded in the current system. If you are a producer, you are completely helpless, their fate lies in the goodwill of a view entities who can destroy the business if it suits them.
This person just read my “Emerging Silver Producer” research report but is concerned about the market manipulation of the precious metals. This apprehension is very understandable.
However, after 14 years of full-time involvement in the precious metals sector, I believe the next big move – the second leg of the bull market, if you will – is in its nascence. This was my reply:
Also, many of us believe that there is a supply issue with silver and gold. 12.7 million ounces of silver have been removed from the SLV vaults since April 27th. 55 tonnes of gold have been removed from GLD since Feb 5th. This is despite the fact that both metals have moved higher in the time period.
For the last 4 years, the financial media has made a point of broadcasting “investor selling” in precious metals by pointing at the metal decline in GLD. Why is the price going up, investor demand going up, yet the metal stock in GLD is going down? Where is the media on this?
This is not supposed to happen. Higher prices mean more investor demand. More investor demand means that the inventories of SLV and GLD should be at best flat, but more likely increasing – not being liquidated. Someone wants/needs that physical metal.
Yes, the bullion banks are still somewhat in control of the price of gold/silver using paper derivatives. But it appears as if they are losing their ability to cap the prices. I was chatting with john Embry yesterday and we both agree on that. We can’t figure out where the silver is coming from to make deliveries other than from SLV. The massive withdrawals from SLV in the last 3 weeks would confirm that.
Is the next leg about to start? Who knows…BUT, I vividly recall back in 2003 or thereabouts, right before gold was ready to launch over $400 and start an 8 year rally to $1900, Robert Prechter was overtly vociferous about calling for gold to fall to $50.
Currently, Harry Dent – who for reasons unbeknownst to me has an avid following – is loudly proclaiming that gold’s next move is down to $700. “The lady doth protests too much, methinks.” Harry Dent, like Robert Prechter, is a scam artist who’s sole purpose is to sell research. By the way, where has Prechter been lately on gold…
Steve St. Angelo wrote an interesting article reporting that U.S. silver imports have mysteriously jumped nearly 44% during Q1 2015 vs Q1 2014. As he details, the big increase is not explained by the demand numbers for industrial silver, silver eagles or the Comex warehouse vault silver stocks. (click on graph to enlarge; source: SRS Rocco Report)
I’m wondering if perhaps JP Morgan might be the source of the import demand. JPM is the custodian of the SLV vault. As of the latest data available from the NYSE, the short interest in SLV is 20.6 million shares. This is an 11% jump in short interest over the previous week’s report. The short interest represents 20.6 million ounces of silver that are theoretically/potentially owed to the SLV Trust. If large holders of SLV decide to turn in their shares for redemption of silver bars – and assuming they are not blocked from doing so by the Trustee – which I know is happening with GLD – the SLV Trust would find itself in an awkward position if it can’t honor deliveries.
Furthermore, JPM is also thought to be the largest source of short interest in Comex futures. Many of us have been postulating that, because of the trading behavior in silver over the last 6 months or so, it appears as if there is a physical supply vs. delivery demand problem brewing in silver. This group includes myself, GATA’s Bill Murphy and Sprott Asset’s John Embry. James Turk has pointed out that silver is currently in backwardation in London, which means there is a short term shortage of physical silver available for delivery into LBMA forward contracts.
To put the Comex silver open interest in perspective, as of the latest open interest report, there were 116,606 open contracts for the July delivery month. This translates into 583 million ounces of silver. As of the latest warehouse stock report, there were 60 million ounces of silver available for delivery in the “registered” account. click to enlarge:
In other words, nearly 10 ozs of paper silver has been sold to buyers for every ounce of real silver that is available for delivery. This is just for July. You don’t have to be Einstein to understand the potential force behind a short squeeze if just 20% of the longs on the Comex decide to stand for delivery in July because they are nervous about the dollar/economy.
Between the short interest in SLV, the high probability that a significant portion of SLV silver has been hypothecated in some form, and the enormous naked short interest position in Comex silver futures vs the alleged amount of silver stock available to deliver on the Comex, it’s entirely possible that a huge short squeeze in physical silver is fomenting. Perhaps it was JP Morgan and other bullion banks who were responsible for the enormous amount of silver imported into the U.S. during Q1 2015 as a means of partially covering their naked short position in silver via Comex futures, SLV short interest and OTC silver derivatives.
I continue to stand by my prediction that silver will be the best performing asset in 2015. If I’m right about the potential for a short squeeze in physical silver, this trade will be a slam dunk.
This is a stunning article posted a few days ago by Steve of SRSrocco Report:
Myself and few colleagues have been of the view that the big banks are having an even bigger problem sourcing silver to deliver into India and China and that’s why they are so aggressively trying to pound silver using fraudulent paper on the Comex…You’re kidding yourself if you don’t think SLV silver has been massively rehypothecated for this purpose.